The current “death tax” threshold is $5.43 million; many people therefore feel they don’t need to worry about a death tax. Of course there is no such thing as a “death tax”, it is actually called the Federal Estate Tax. Not to be confused with complex State Estate Taxes.
Here is what you need to know.
When you die and leave stock in a taxable account to someone the “cost basis” value of that investment is reset to the current market value upon your death. This can be a huge advantage for your loved ones. For example, if you bought 500 Apple (APPL) at $100/share years ago and then it split 7:1 and is now trading at $127. Your “cost basis” is $50,000, the current value is $444,500. If you sold it you would be paying a huge capital gains tax on the $394,500 gain. However if you die and leave the stock (not cash) to say family members, the “cost basis” becomes $444.500. Therefore, If the person(s) inheriting the stock immediately sold it there would be NO TAX. This is called a “step-up in cost basis”. You can use this information in your overall estate planning.
Beware of the “stretch IRA” law change! Notice I mentioned taxable account, it is completely different in a retirement account, either IRA or 401K. I’ll explain this in my next blog posting.
In my last posting “The Easiest Way to Lose Money in the Market – Selling” I discussed how the average investor unfortunately sells when stock prices are dropping and panic sets in.
There are however some simple rules that you can use to determine when is a good time to sell an investment, including stocks, bonds, funds or ETF’s. These rules aren’t for day traders; they are for long term investors.
- Rebalancing. Investors need a plan that includes diversification. The larger the portfolio the more diversification makes sense. Let’s say that you determine Healthcare should be 10% of your portfolio. At the end of a quarter you review your holdings and see that your Healthcare has gone up so much that it is now 15%. This is just too high and you decided to sell some of your holdings in this sector and “rebalance”.
- The Story Changes. You always need a specific reason to buy or sell a stock. I started buying Airline stocks in early 2014 when I saw that oil prices were dropping and each of my airline stocks had a unique story. American Airlines was bought by US Airways, Delta bought a refinery in Philadelphia, JetBlue announced a restructuring. At the same time I started selling my Utilities in late 2014 to lock in my gains as it became clear that the Federal Reserve would start raising rates in 2015 and Utilities would not be a good place to be for the next 12 months.
- Look at the Technical’s. Technical’s refer to stock charts. It is really important that you know how to read and understand stock charts. If you are a long term investor you might want to look at the 12 month “daily” chart. On this chart you can plot the following comparisons:
- 50 day EMA (exponential moving average), this is 2 trading months
- 200 day EMA, this is roughly 10 trading months
- SPY, the industry standard ETF normally referred to as “the market”
Here is an example of a strong selling indicator, a “death cross”. One of my past holdings was AEP, American Electric Power, one of the largest and best run utilities in the country. In the last few days AEP’s stock price ( had a “death cross”, a clear broken trend. The 50 day EMA (black Line) crossed below the 200 EMA (green line). In addition, AEP (blue line) was already trending below the overall market SPY (purple line). Sell, sell, sell!
4. Play with House Money. When you make a lot of money in a speculative stock, sell some on an “up day” to take some profits. This is especially true in a tax sheltered account like an IRA or 401K plan. Jim Crammer always preaches this.
5. Moves by the Federal Reserve. Never fight the Federal Reserve, as the saying goes, it will bite you in the backside. The upcoming rate hike by the Fed has been telegraphed now for almost a year. This means that most interest rate sensitive stocks or bonds will get hammered. Sell your bonds now, they are already dropping in price and you will lose much more in principal that the very small dividends they pay.
Given the current economy this may be an important topic in your business. I saw an interesting story written by Amy Gallo in the Harvard Business Review that indicated conventional wisdom of not hiring “over qualified” candidates may not hold true in all cases. The assumption of course is that an over qualified candidate will be underutilized, become bored and leave.
Point #1: What is over qualified anyway, the person’s skills exceed the requirements? Education is not experience and may not include the required skills. Previous experience may not be a good indicator since the required skills for the new job might be different. Meeting the candidate personally and addressing the reason the candidate is interviewing for a job that one might think he/she is “over qualified” for. In the early 80’s, I left a senior sales management job at a big national company to join a very small software company, I was viewed as very over qualified. Why, I wanted to get into the software industry when it was still young. It turned out to be a win/win for both parties. Look past the resume.
Point #2: Hire for more than the current job. Many businesses are growing and the hiring manager should be looking for someone that can move up in the organization, beyond just the current requirement. There can be no guarantees and the manager should communicate this to the candidate. Growing businesses always need people to promote, hire them now, before you need them and see what happens. Your biggest problem is that managers won’t hire people they view as being better or more skilled than they are.
Point #3: Don’t under pay. It doesn’t do any good to under pay a new employee just because of a down economy. What will your expectations be when the economy turns? People know what a fair salary is and your goal is to keep employees and pay them for performance. If your salary range is quite a ways from the normal pay for the level candidate you’d like to hire address the issue heads-on with the candidate. Again, there may be common ground that will allow you to bring on this “over qualified’ person.
The bottom line is that hiring and training new employees is very expensive. As they say in sports, “pick the best athlete” in the draft, then worry how to fit them in.
In my last posting I identified how to hire the right people and who you might want to avoid. In this post we’ll discuss keeping good people. Some businesses just seem to suffer from continual turnover of the staff, others appear to be training grounds for other businesses in their field.
One fact of business …. it is immensely cheaper to keep good people than to find good or better replacements. First we’ll take a look at the top 5 reasons why people might leave in the first place.
Top 5 reasons why employees leave.
- Higher Pay. Surveys consistently show that the overall #1 reasons employees leave is compensation. It is interesting to note that many times this is a result of “pay compression”. This compression exists when there appears to be very little difference in pay between top, mid and bottom performers. You know the scenario, everyone gets an automatic 3% raise and there are little in terms of substantive evaluation. The job only appears to be worth a tight salary range. Add all sorts of benefits into this discussion of total compensation.
- Below Market. This is very similar to the one above but looks a little different to the employee. In this case the employee has access to surveys that show they are paid well below market rates. Many times you don’t need a survey, just find out what newly hired employees in the same company are being paid for the same job. Not surprisingly, the employee finds out that their 7 years of loyalty and excellent appraisals pays much less than risky new hires.
- Over or Under Managed. In this case it’s either they are being micro-managed and there is little room for growth, or they have little communication and direction from a manager. It’s no mystery that employees actually like to be properly managed and crave for leadership. To me, excessive turn-over is a manager problem.
- Overall Communication. Communication or the lack of, is one of the key reasons employees feel dissatisfied with their job. How well am I doing? I have no idea because no one tells me. All employees from top to bottom like to know both how they are performing and how the overall business is doing. Why, it’s a matter of safety to them. It builds trust when these things are communicated.
- The Environment. What is the workplace like, is the employee comfortable, is it professional? Is there too much drama, employee in-fighting and low moral? If so I can guarantee you’ll lose good people quickly.
Ways to keep good people
- Actually it’s quite easy, just deal with the top 5 reasons why they might leave.
- Let’s tackle Higher Pay. Although employees might say this is the number one reason for leaving, it may not have started them looking in first place. Communicate to each employee upfront and on a continual basis what the business’s overall compensation plan is for the position being discussed. Can the company provide a growth path for excellent performers?
- Many employees will sacrifice pay for other items they feel are valuable to them. For example, the security of a long term job, with a company that “treats them well”. This tends to be the case for small or mid-size firms who just can’t match the compensation for big city, big companies. There are many non-compensation factors that keep good people on-board.
- Give employees “real jobs”, those that have responsibilities, the ability to be recognized publically for a job well done. Provide the best management you can, don’t knowingly let a poor manager cost you people.
- Have fun, employees what jobs that are fun. I know it sounds corny and you run a professional business that is just too “out-of-place” to allow “fun”. You are wrong. Every business can find ways to allow their employees to become engaged in fun activities and functions. Conduct a contest, hand out simple goofy awards, those types of things. Kool-Aid at lunch contests. Just ask some of your more outgoing employees what might be fun and let them run with it.
- Never stop communicating. It’s just amazing that all business people believe they are good communicators, that communication is essential and that employees what consistent communications. Then they just don’t do it, they are just too busy to consistently communicate. Hold regular company meetings; allow both managers and staff to talk about accomplishments. Constantly tell them what is going on, good news and bad news. They are much better off hearing the good and bad from you than others who will get the details a little wrong.
All but the very largest businesses can become very “people-dependent”, therefore small changes in staffing can have much larger effects on the business.
Here are some helpful tips on hiring the right people.
- Start with a comprehensive job description for the position. Also determine the career path and level of training you are willing to provide.
- Almost completely disregard a person’s references and resume, other than to put them in the generally qualified category for further evaluation. References provided by the applicant are going to give you nothing but the very best qualities and resumes are well known to exaggerate a person’s real accomplishments.
- Before taking a lot of time with candidates, have them tested for various competencies, including analytical skills. Can the candidate solve problems, are they extroverts and you are looking for someone with communication skills? Testing will quickly find personality traits that match your needs.
- Only hire the smartest people, assuming they have the basic skills to do the job. Make sure they have problem solving skills and can adapt to constant change.
- The smaller the organization the more important it is to have a cultural fit, have a few existing employees interview the candidate.
- Provide the new hire with early hands-on training and a well-defined on-boarding process, this helps make sure you have the right candidate.
- Put all new hires on an “up to 90-day probation period” and watch closely. You can usually find a bad hire within a few weeks.
Beware of these People.
- Beware of people that have been doing the same exact job for a very long time. Why? Because it may have taken them a very long time to learn simple, basic tasks. Secondly, they may be unwilling or unable to accept constant changes. We all admire employee loyalty, just make sure this loyal candidate also passed through the first 5 steps above.
- Beware of hiring “victims”, these are people who never take any responsibility for their own actions. Everything that ever happens in their department, office or business was someone else’s fault. They couldn’t do their job because of others, constantly. If in doubt, read the book called The Oz Principle.
- Beware of people who have inappropriate or strange postings on their Facebook, or LinkedIn site. I would use anything here to hire a candidate, but I would surely use it as a reason to disqualify a candidate.
If you follow these guidelines you might even find and keep a valuable employee.
For those that follow my blog you know that I explained back on December 5, 2014 how the real price of gasoline is determined, by the RBOB futures market.
The price of gasoline is supported by the price of oil. The US is swimming in oil, we have a major oil storage problem. On Wednesday each week the U.S. Energy Information Administration releases the weekly crude oil inventories. This week the forecast was for 4 million barrels in storage, instead we actually had 10.3 million barrels. We have a crude oil glut and just can’t seem to turn it off.
Based on just a little bit of math it’s real easy to see that the refiners are making a ton of money on the spread between the price of oil vs. the price of gas (RBOB). Here are the numbers:
December 5, 2014 WTI Oil $65.89 RBOB Gas $1.78
March 6, 2015 WTI Oil $49.84 RBOB Gas $1.88
In the last 90 days oil has dropped 24%, yet the price of gasoline has gone up.
The Gascalc site has an interesting tool that calculates the price of gasoline based upon the price of oil. It says that if oil is at $50/barrel, gas should be $1.64/gallon at the pump. The price at the pump can be $.50 – $.80 higher than RBOB due to shipping costs, gas station profits and all the taxes.
Here are the excuses (reasons) why gas is so high:
- About 7,000 members of the United Steelworks are on strike at various US refineries.
- Refineries usually shut down in the spring to switch to summer gasoline blends, however it usually takes place a little later than this.
- A secret government conspiracy. (I just made this up)
The real reason that gasoline is so expensive is that the refiners have slowed down production, creating an artificially tighter supply of gasoline and are therefore making huge margins on what they are producing.
Isn’t it just great, the price of gasoline continues to drop like a rock? Oil (WTI) futures market has settled into the mid-$50 range and are expected to stay low for quite some time. The RBOB futures (Jan 15) price has now dropped to $1.53,see my story on the price of gasoline.
So now there is another problem, what to do with all the oil and gas being produced and no place to put it. How big is the problem? In the week ending December 5th US inventories of crude oil and gasoline rose by 15.3 million barrels, the expected amount was only 800,000 barrels. The US now produces almost 9 million barrels of oil per day, and 80% increase in just the last 6 years.
OPEC oil producers, especially the Saudi’s account for about 40% of worldwide production and are loading up their oil into all the available tankers and sending them out to sea. We now have millions of gallons sloshing around with nowhere to go. Much of this is being stored in hopes that there is a quick fix to the low price dilemma the producers face. Here in the US producers have already maxed out tank storage and are filling up rail cars. China has been taking advantage of this reduction and is also stockpiling all the oil they can.
On a temporary basis this is probably fine, but pretty soon we’ll run out of rail tank cars, ships and storage facilities.
Any suggestions on where to put all of this “liquid gold”?